0100 01 it prj planning webinar

CATEGORY: Strategic Planning > IT Project Planning

Management Skills Training Guide

Category: Strategic Planning

IT Project Planning

Developing the Business Case for Requesting Project Fund$.

About the Speaker

Richard “Ric” FrederickProject Management Professional (PMP)Microsoft Certified Professional (MCP)

www.linkedin.com/in/rfrederickwww.pm-essentials.com

Assured Solutions::[email protected]

Executive Summary

Situation:

IT Governance is the Structured Oversight (select, control, evaluate) executives perform to ensure the alignment of IT investment with Strategic Priorities.

Problem:Because of poor methodology, a lot of time is wasted on good ideas that ultimately do not get funded.

Solution:

Utilizing the Project Management International (PMI®) - Project Management Body of Knowledge (PMBOK®) as the basis for planning IT projects can help IT Managers write a more credible business case.

How It Works:Nine (9) Knowledge Areas and the Project Planning Process.

Benefits:Improve the Opportunity for funding Capital Budget requests.

Next Steps: One (1) Hour IT Planning Webinar

What are Projects?

What are Projects?

• Groups of Business Activities…

• Required to Transform Knowledge into Wealth…

• For Maximizing Return on Investment…

• Of Owner’s Equity or Net Worth…

• By a Specific Target Date.

Groups of Business Activities…

Operations(Manage the

Work)

Sales(Get the

Business)

Service(Do the Work)

Accounting(Get Paid)

Groups of Business Activities…

Required to Transform Knowledge into Wealth…

Input Output

Process

Operations(Manage the

Work)

Sales(Get the

Business)

Service(Do the Work)

Accounting(Get Paid)

Required to Transform KnowledgeInto Wealth…

For Maximizing Return on Investment…

Return on Investment = (Productivity) x (Efficiency)

Productivity =(Total Revenue) / (Total Assets)

Efficiency =(Total Profit) / (Total Revenue)

For MaximizingReturn on Investment…

Of Owner’s Equity or Net Worth…

(Assets) - (Liabilities) = NetWorth

What YouOwn

What YouOwe

What’sLeft.

Of Owner’s Equity,Or Net Worth…

By a Specific Target Date.

RATE YEARS RATE YEARS RATE YEARS RATE YEARS

1%72

years 6%12

years11%

6.55

years16%

4.5

years

2%36

years7%

10.3

years12%

6

years17%

4.24 years

3%24

years8%

9 years 13%

5.54

years18%

4 years

4%18

years9%

8 years 14%

5.14

years19%

3.79

years

5%14.4

years10%

7.2 years 15%

4.8

years20%

3.60

years

“Rule of 72”

By a Specific Target Date…

OVERVIEW

Situation

Solution

Benefits

Problem

How It works

Next Steps

Situation Problem Solution How It Works Benefits Next Steps

SITUATION > Executive Scrutiny

• Because of increased transparency (Sarbanes-Oxley) and accountability (Clinger-Cohen Act)...

• Executives at public institutions, U.S. Corporations and Government Agencies, are under increasing scrutiny to wisely manage the capital entrusted to them by stockholders and tax payers.


Executive Scrutiny

IT Governance

Do More with Less

Manage for Value

Time Value of Money

Cost of Capital

ROI

Capital Budgeting

SITUATION > IT Governance

• IT Governance is the structured oversight (Select, Control, Evaluate) that executives perform to ensure the alignment of IT investments with strategic priorities.

• According to the Federal CIO Council committee on Capital Planning and IT Investment, there are sixteen (16) success factors associated with the selection of Information Technology.


Executive Scrutiny

IT Governance

Do More with Less

Manage for Value

Time Value of Money

Cost of Capital

ROI

Capital Budgeting

SITUATION > Federal CIO Council > 16 Success Factors


Executive Scrutiny

IT Governance

Do More with Less

Manage for Value

Time Value of Money

Cost of Capital

ROI

Capital Budgeting

1. Establish corporate decision making infrastructure.

2. Defined business, technical, and management goals and

objectives.

3. Involve functional level IT executives.

4. Integrated IT planning cycle with agency budget cycle.

5. Use of Scorecards.6. Developed portfolio

management approaches.

7. Active, energized investment review board.

8. Analyzed multiple investment risk categories.

9. Use of Raines Rules and guiding principles.

10. Predicted benefits of investment that accrue in the near

term rather than 3-5 years.

11. Standardized reporting formats.

12. Exercised a practical "make sense" approach.

13. Exercised flexibility where appropriate.

14. Develop criteria for applying decision making.

15. Incorporated lessons learned into process.

16. Use mission based performance measure.

SITUATION > “Do More With Less”

• With Executives under scrutiny, Functional IT Managers are increasingly told to “do more with less.”

• Already challenged with the requirements of managing technology, these managers need a better way to “manage for value.”


Executive Scrutiny

IT Governance

Do More with Less

Manage for Value

Time Value of Money

Cost of Capital

ROI

Capital Budgeting

SITUATION > Manage for Value

• Manage for Value

– Time Value of Money

– Cost of Capital

– (ROI)Return on Invested Capital

– Capital Budgeting


Executive Scrutiny

IT Governance

Do More with Less

Manage for Value

Time Value of Money

Cost of Capital

ROI

Capital Budgeting

SITUATION > Time Value of Money

“A dollar ($) today

is worth more

than

a dollar ($)

tomorrow.”


Executive Scrutiny

IT Governance

Do More with Less

Manage for Value

Time Value of Money

Cost of Capital

ROI

Capital Budgeting


• How do You improve Your Standard of Living?

1.Save Your Money.

2. Invest Your Money.

3.Start a Business.


Executive Scrutiny

IT Governance

Do More with Less

Manage for Value

Time Value of Money

Cost of Capital

ROI

Capital Budgeting


Time

Risk/Return

Inflation

Savings

Investing

Business

Risk/Return

0


SITUATION > Cost of Capital

• If I invest (lend) a ($)

dollar with you today…

1.When will you give it

back to me?

2.How much will you pay

me (INTEREST) for the

use of my ($) dollar.


Executive Scrutiny

IT Governance

Do More with Less

Manage for Value

Time Value of Money

Cost of Capital

ROI

Capital Budgeting

SITUATION > Cost of Capital

• Interest Paid to a Lender or

Dividends Paid to an

Investor is the “Cost of

Capital” to a Company.

• The Cost of Capital is what

a Business REPAYS its

Lenders or RETURNS to its

Owners.


Executive Scrutiny

IT Governance

Do More with Less

Manage for Value

Time Value of Money

Cost of Capital

ROI

Capital Budgeting

SITUATION > (ROI) Return On Invested Capital

• The SOLE Reason Companies Exist

is to:

– MAXIMIZE the (ROI)

Return On Invested Capital

– Which is placed “At-Risk”

by the Owner(s) and

Investor(s)

– In Excess of the Company’s

Cost of Capital.


Executive Scrutiny

IT Governance

Do More with Less

Manage for Value

Time Value of Money

Cost of Capital

ROI

Capital Budgeting


Return on Investment = (Productivity) x (Efficiency)

Productivity =(Total Revenue) / (Total Assets)

Efficiency =(Total Profit) / (Total Revenue)


Dupont ROIReturn on Invested Capital


• Productivity is a Ratio of Output to Input.

• In Financial terms, this is the ratio of sales to investment and represents the ability to generate revenue for a given level of assets.

• How many sales ($) dollars can I GENERATE from one (1$) dollar of assets?


Executive Scrutiny

IT Governance

Do More with Less

Manage for Value

Time Value of Money

Cost of Capital

ROI

Capital Budgeting


• Efficiency is a measure of a company’s ability to CONTROL EXPENSES at a given level of activity.

• In Financial terms, this is the ratio of earnings (net income) to sales.

• How much money can I RETAIN from one (1$) dollar of sales?


Executive Scrutiny

IT Governance

Do More with Less

Manage for Value

Time Value of Money

Cost of Capital

ROI

Capital Budgeting

SITUATION > (ROI) Return On Invested Capital > Chart of Accounts

Account Number Account Financial Statement Normal Sign Description

1-0000 Assets Balance Sheet

Debit Total Capital

2-0000 Liabilities Balance Sheet

Credit Source of Capital

3-0000 Equity“Net Worth”

Balance Sheet

Credit Source of Capital

4-0000 IncomeRevenue

Income Statement

Credit Sales Income

5-0000 Cost of Goods Sold

Income Statement

Debit Production Costs

6-0000 Expenses Income Statement

Debit Overhead Costs


Chart of Accounts

SITUATION > (ROI) Return On Invested Capital > RMA Diagram

Account Number

Account Financial Statement

Period Start 1st Period 2nd Period 3rd Period 4th Period Period End

4-0000 Revenue

Income

Income

Statement $2.78 $3.25 $3.78 $4.42

5-0000 Cost of

Goods Sold

Income

Statement

39% or

$1.08$1.27 $1.47 $1.72

6-0000 Expenses Income

Statement

55% or

$1.53 $1.79 $2.08 $2.43

∆ Cash Flow Cash Flow 6% or

$0.17$0.19 $0.23 $0.27

1-0000 Assets Balance

Sheet $1.00 $1.17 $1.36 $1.59 $1.86 $1.86

2-0000 Liabilities Balance

Sheet .50 .50 .50 .50 .50 .50

3-0000 Net

Worth

Balance

Sheet .50 .67 .86 1.09 1.36 $1.36


RMA Diagram


• The SOLE Reason Companies Exist is to

MAXIMIZE the (ROI) Return On Invested

Capital which is placed “At-Risk” by the

Owner(s) and Investor(s) in Excess of

the Company’s Cost of Capital.

• Those of you who work in a business are

Responsible to the Owner’s for insuring

that their CAPITAL BUDGETED for the

purchase of Assets and Projects

generates a return which is greater than

the cost of that capital.


Executive Scrutiny

IT Governance

Do More with Less

Manage for Value

Time Value of Money

Cost of Capital

ROI

Capital Budgeting

SITUATION > Capital Budgeting

• The Process and Tools used for Evaluating the Desirability of Long-term Assets and Projects.

• Insures that EVERY Project purchased or performed by the company generates cash flows which exceed the cost of the project by more than the company’s cost of capital.


Executive Scrutiny

IT Governance

Do More with Less

Manage for Value

Time Value of Money

Cost of Capital

ROI

Capital Budgeting

SITUATION > Capital Budgeting

Period Start 1st Period 2nd Period 3rd Period 4th Period

CashFlows -$1.00 $2.78 $3.25 $3.78 $4.42

Cost of Capital 10%

BreakEven

.27 Years3.5

Months

NPV $9.16

EfficiencyProfitability

916% ROI


OVERVIEW

Situation

Solution

Benefits

Problem

How It works

Next Steps


PROBLEM > Capital is Scarce

• In today’s business climate, capital is scarce and the stakes could not be any higher. Waste money, lose your job.

• In order to do their jobs, functional IT managers must “run the gauntlet” of IT governance to receive funding for capital projects.


Capital is Scarce

Poor Methodology

Good Ideas. Wasted Time.

PROBLEM > Scope, Methodology, & Business Case

• Functional IT Managers are focused on Functional IT Requirements.

• Requests for Capital FAIL because:

– Project SCOPE Not Directly Tied to Strategic Plan.

– Poor METHODOLOGY Drives Invalid Assumptions (Outcomes, Risks, Benefits, etc.).

– Project Plan does not include a Strong BUSINESS CASE.


Capital is Scarce

Poor Methodology


PROBLEM > Good Ideas. Wasted Time

• IT Managers and their staffs have good ideas.

• However, they waste a lot of time building strong technical documentation that never gets Executive Sponsorship.

• What’s needed is A PROCESS to tie their technical knowledge into a Scope, Methodology, Business Case Model.


Capital is Scarce

Poor Methodology


OVERVIEW

Situation

Solution

Benefits

Problem

How It works

Next Steps


SOLUTION


SCOPE Methodology Business Case+ +

OVERVIEW

Situation

Solution

Benefits

Problem

How It works

Next Steps


HOW IT WORKS > Scope > Financial Analysis


SCOPE

Methodology

Business Case

Capital Markets (Lenders)

Liquidity: Current Ratio, Acid Test Ratio

Leverage:Debt to Assets, Debt to Capitalization,

Debt to Equity

Debt Service:Interest Coverage, Principal and

Interest Coverage

Management

Profitability:Return on Assets, Earnings Before

Interest and Taxes (EBIT)

Operational Ratios:

Gross Margin, Profit Margin (Efficiency), Operating Expenses, Profit Contribution of Products, Asset Management, Asset

Turnover (Productivity), Working Capital, Inventory Turnover, Accounts

Receivable, Accounts Payable

Shareholders (Owners)

Profitability:

Return on Owners Equity (NetWorth), Return on Common Equity, Earnings

per Share

Market Indicators:Price to Earnings (P/E) Ratio, Market to

Book Value Ratio

Disposition of Earnings:

Cash flow per share, Dividends per share, Dividend Yield, Payout to

Retained Earnings Ratio, Dividend Coverage

HOW IT WORKS > Scope > Strategic Planning (SWOT Analysis)

capital

humanresources

materialequipment

changingtechnology

Finance

HumanResources

Stock RoomPurchasing

Research &Development

ProgramManagement

DesignEngineering

OperationsManufacturing

Testing

BusinessAnalysts

Management

InformationServices

DistributionOrder Entry

Sales &MarketingCustomer

budgets

staff

supplies

designs

strategy

support

new products

feedback

services

earnings

shareholdervalue

products

services

customerorders

requirementsfeedback

GovernmentRegulations

PoliticalParties

EconomicIndicators

CulturalShifts

InternationalAffairs

CapitalMarkets

LaborMarkets

Suppliers

EmergingTechnologies

Shareholders

Customers

Competitors

products features services costs


HOW IT WORKS > Scope > Strategic Planning (SWOT Analysis)

Impact

Pro

babili

ty

Risk

Risk

Risk

RiskRisk

RiskRisk


SCOPE

Methodology

Business Case

HOW IT WORKS > Scope > Scorecards


SCOPE

Methodology

Business Case

Targets

Strategic Objectives Measurements Yr 1 Yr 2 Yr 3

Financial

Maximum ReturnsUtilization of AssetsRevenue Growth

Return on Equity (%)Utilization Rates (%)

Change in Revenue (%)

127

11

138

11

149

11

External

Customer RetentionCustomer ServiceCustomer Relations

Retention (%)Survey Rating (%)

Self Initiated Call (%)

758535

758840

759045

Internal

Fast DeliveryEffective ServiceOptimal CostResource Utilization

Turnaround Time (min)1st Time Resolution (%)

Cost of Sales (%)Productivity Indicator (%)

15m685060

14m694862

13m704664

Learning

High Skill Level Skill Set Ratio (%) 65 67 69

Employee Satisfaction Survey Rating (%) 85 88 90

Outstanding Leaders 5 Point Ranking 4.5 4.7 4.9

HOW IT WORKS > Methodology > PMI® Knowledge Areas

IntegrationManagement

ScopeManagement

TimeManagement

CostManagement

QualityManagement

ResourceManagement

CommunicationManagement

RiskManagement

ProcurementManagement


SCOPE

Methodology

Business Case

HOW IT WORKS > Business Case Development

BusinessCase

Development

Overview

Title and Subtitle To and From Date Subject andPurpose

Disclaimer ExecutiveSummary

Introduction

Methods Financial Metrics Assumptions Scope andBenefits

Cost/BenefitModel

Data Sources andMethods

Impacts Financial Model Cash FlowStatement

Analysis ofResults

Non FinancialBenefits

Risk Risk Analysis SensitivityAnalysis

Contingencies andDependencies

Summary Conclusions Recommendations


SCOPE

Methodology

Business Case

OVERVIEW

Situation

Solution

Benefits

Problem

How It works

Next Steps


BENEFIT > Results & Consequences

Result: Consequence:

Contribution to Strategic Business Objective

Net Benefit

Tangible but non financial benefit

Cash Inflow

Avoided Cost Cost Outcomes

Cost Decrease Cost Outcomes

Continuing Cost Cost Outcomes No Change

Cost Increase Cost Outcomes Net Cost


BENEFITS > Benefit Measurement


Step 1: Define a measurement for each benefit:Benefit =>

Measurement to be used =>

Description of Measurement =>

Units of Measurement ($,%,etc)

Update Frequency:M for Monthly, Q for Quarterly, A for Annual, etc.

Degree of Reliability:V for Very Reliable, M for Medium Reliability, L for Low Reliability

Sets Objective:Degree of usefulness in establishing objective - High, Medium or Low

Ability to Benchmark:H for High, M for Medium, L for LowResponsibility Location:Team, Project, Department, Manager, etc.

Degree of Fit:(within the organization) High, Medium or LowDegree of Support:Available support (IT, Finance, etc.) in place - Yes or No

Step 2: Define the sources for the measurement:Internal documents / reports

External documents / reports

Special studies

Programs

Databases

Other

Step 3: Define how the measurement is derived and “accounted “for:

Calculation Required:

Assumptions in Calculation:

Availability of Data: Currently Available, Requires Research, Not Available

Benefit Measurement

OVERVIEW

Situation

Solution

Benefits

Problem

How It works

Next Steps


Next Steps


Free Consultation.

Initial Analysis.

Agree to Agree.

0100 01 it prj planning webinar

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